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While each funding round typically results in the dilution of ownership percentages for existing investors, the need to sell a higher number of shares to meet f

While each funding round typically results in the dilution of ownership percentages for existing investors, the need to sell a higher number of shares to meet financing requirements in a down round increases the dilutive effect. Due to the potential for drastically lower ownership percentages, raising capital in a down round is often a company’s last resort, but the new funding may represent the company’s only chance of staying in business. Read more: Down Round https://www.investopedia.com/terms/d/downround.asp#ixzz5U48D1Cb0 https://www.investopedia.com/terms/d/downround.asp#ixzz5U48D... Follow us: Investopedia on Facebook

Dylan16807 8y ago
Not good enough. If you would have been happy selling shares at X valuation, if only that high-valuation deal had never happened, then the level of dilution is acceptable to you. "This down round is bad because it's undervaluing and over-diluting" is an easy to understand argument. "This down round is bad because a previous round overvalued the company, even though the down round is the correct valuation and the correct dilution" is an argument that needs more justification. If the valuation is flat-out too low, then the fact that it would be a down round has nothing to do with the problem. A too-low valuation is a problem even if it's higher than your last valuation.
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